GDP is often associated with PPP or purchase power parity, here parity means comparison. However, GDP is related to national economy while PP has two levels, national and individual. Often GDP is considered more important than PP but it is observed that PP is more important when we consider it at individual level. At times, even at national level PP (purchase power) is more valuable than GDP; since, if there is PP; GDP can be replaced by imports. Very often PP is acquired by selling services which is not presently taken into consideration when calculating GDP. India is acquiring PP by exporting IT, BPO services to world. Other services such as tourism, medical or yoga treatments are not considered. This must be corrected. Low PP as compared to GDP is interpreted as good for the nation but bad for the individual. This discrepancy creates many problems at individual level because government says everything is good as GDP is high never bothering to see how low PP of individual is affecting his life. This is called ‘book cooking’ in stead of ‘book keeping’ in audit.

Very often we hear of having high GDP of the rate, 9% and so; but the way that is achieved is very clandestine. While calculating GDP of a nation if cost of such work as road, bridges, railways, airports, monuments to commemorate some national or political bigwig are added to the total spending the government can increase the percentage, that is what called, clandestine way of showing very high GDP. Actually this expenditure should not be included in the calculation of GDP since this spending does not add to the growth of the country for that year only. Per se, such expenditure should be included as capital expenditure and the cost are evenly distributed to number of years for which such work benefits. Expenditure only on production of merchandise is expected to be included while calculating GDP of the nation. And if that is done we shall see that the actual GDP will be very small for any country. There are many differences of opinions on this issue and quite often clandestine inclusion of expenditures in the GDP as given above is done only to misguide people and show them that the government is doing good work.

This way government can fool gullible but the results on the national level finally betray the truth. And we see in spite of high GDP %; there are shortages, cost escalation and other problems such as unemployment, suicides of farmers and may be even workers. Many economists all over the world insist that there be one standard method of calculation for GDP for all nations however, we see that as on now different countries use different methods to calculate the GDP of that country. If we ask finance ministry to explain how they came to this high percentage of GDP, no proper answer is given. When we ask why capital expenditure such as mentioned above is included in that year alone while it works for many more years, they do not have a reply.

To avoid the enigma of relation in GDP and PP, I suggest countering the priority by considering first PP and then according to that set the GDP. Of course in such situation we will be taking only the real cost for the GDP and spending on capital will not be added. They should match. If they do not match we will have all the problems mentioned above, shortages, cost escalation and so on. In that case we will mention them as ‘PP and GDP/P’ in place of ‘GDP and PP/P’ as we do today. This reversal of working will not allow any clandestine manipulation of the expenditure which they do today. The people will also have picture very clear to them and they will be able to understand if things go wrong, why they did so!

Alas, this will not be accepted by the callous governments of professional politicians as they do not want to expose their stealthy activities.

To understand the subject I want to make it a little easy by taking an example of individual level of GDP and PP. Gross Domestic produce and purchase power are applicable to nations and individuals on the same level and so this example will help the readers understand how this reversal will help the economy. Consider that a person has income 2 rupees and so that is his GDP, if the person has expenditure 2 rupees (that is his PP) then the two match and we may say that his economic condition is not in trouble however, if the spending is 3 rupees we shall see very clearly that he will have to borrow and that means his economic condition is not good. On the other side if his spending is 1 rupee then we find that his condition is good. Or we can advise him that next day he may spend more than 1 rupee and yet he will not be in bad shape. That is how the economic plans of a country are also worked. Here we see that his spending (PP) decides the economic policy and not income (GDP) and not the other way round. In ideal economic condition we believe that PP should match GDP. If GDP exceeds PP then the country is in good shape but if we include clandestinely capital expenditure as GDP the whole calculation goes wrong and that is what is happening everywhere.  

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